Introduction

Fantasia Holding (Fantasia or the company) is a leading property developer and property related service provider in China. The company developed a portfolio of property development projects with a focus on the urban complexes and upscale residences. Leveraging on the broad experience and capabilities, Fantasia have successfully expanded into and currently focus real estate activities in four of the fastest-growing economic regions in China, namely the Chengdu-Chongqing Economic Zone, the Pearl River Delta region, the Yangtze River Delta region and the Beijing-Tianjin metropolitan region. In November, 2009, Fantasia has successfully listed in HKEX.

Summary

In recent years Fantasia kept its increasing steps in its performance, especially profit in 2009 soared. In 1H2010 Fantasia's revenue and net profit increased by 42.8% and 74.5% YoY. The Chengdu-Chongqing Economic Zone has gradually become the investment highlight and sale center, we expect that sales in 2010 will reach 4.5billion to 5bilion.

The operating model as urban complexes and upscale residences may spread risk of controlling policy, having enough margin of safety. We expect that its net profit in 2010 and 2011 will be RMB 805million and 1.13billion, and EPS will be 0.17 and 0.23 respectively, representing to HKD 0.195 and 0.264.

Based on P/E valuation, we give Fantasia 6x 2010 P/E, 12m TP at HKD 1.58, 18.8% higher than current price. We give Fantasia “Buy” rating.

Performance in recent years rose sharply

In recent years Fantasia kept its increasing steps in its performance, CAGR of revenue and net profit in 2006-2009 was 93% and 28% respectively, especially in 2009 performance soared for good sales in Chengdu Region, profit and assets scales were both promoted significantly, per figure1.

In 1H2010 the company achieved revenue of 1.92billion, up 42.8% YoY, net profit was 410million, rising by 74.5% YoY, and gross profit margin rose from 41.4% to 49.7%.

The Chengdu-Chongqing Economic Zone, the company's sales center

In 1H2010 Fantasia's sales area was 118K sq.m., sales were 1.39bilion, in which sales of 1.04billion came from urban complexes, including the four plaza projects in Shenzhen, Chengdu and Tianjin. Because of sharp increasing ASP and high price of urban complexes, the company's sales rose by 29% in despite that sales area dropped by 17%. ASP in 1H2010 was 12689 per sq.m., up 92.9% YoY.

Leveraging on the broad experience and capabilities, Fantasia have successfully expanded into and currently focus real estate activities in four of the fastest-growing economic regions in China, namely the Chengdu-Chongqing Economic Zone, the Pearl River Delta region, the Yangtze River Delta region and the Beijing-Tianjin metropolitan region.

Since 2001 the Chengdu-Chongqing Economic Zone centered Chengdu has gradually become investment highlight and sales center of Fantasia. In 2009 contracted sales in Chengdu was 1.96bilion, accounting for 52% of total sales. In 1H2010 sales in the Chengdu-Chongqing Economic Zone reached 770million, accounting for 56% of total sales. Currently there are 6 projects under development in Chengdu, GFA at over 3million, enough meeting the demand in future 5-8 years.

In the first ten months of 2010 there have 11 completed projects for sale accumulatively amounted to 0.89million sq.m., and the company has achieved contracted sales of 2.7billion. We expect that the full-year sales will be RMB 4.5billion to 5bilion.

Land bank will exceed 15million sq.m.

Fantasia accelerated its step on land reserve in 2010, up to now the company has acquired land bank of over 2million sq.m., new land in 2010 will reach 3million. Most of land bank was acquired by acquisition, and the rest parts were acquired by bid.

We think that multi-channel access to get land reserve is helpful to lower risk of land acquisition and land cost. We expect that land bank of Fantasia at the end of 2010 will exceed 15million, in which land of the Chengdu-Chongqing Economic Zone will account for over 50%.

Currently there are ten projects under construction amounted to 1.23million sq.m. and 14 projects for future development amounted to 5.68million sq.m.. It's foreseeable that expense in future will keep increasing. Its 2010 interim report showed that its liability to asset ratio was 70% and net debt ratio was 42%. The company's financial status kept healthy. Currently Fantasia planned to issue TDR, which are expected to raise 500million to 10million. The new launched plan may supply operating capital, which has positive meaning on future expansion of the company in weak market.

Risk

The risk of land reserve will rise with the enforcing regulation policy on land.

Sales will not hit previous forecast.

Valuation

The operating model as urban complexes and upscale residences may spread risk of controlling policy, having enough margin of safety. We expect that its net profit in 2010 and 2011 will be RMB 805million and 1.13billion, and EPS will be 0.17 and 0.23 respectively, representing to HKD 0.195 and 0.264.

Based on P/E valuation, we give Fantasia 6x 2010 P/E, 12m TP at HKD 1.58, 18.8% higher than current price. We give Fantasia “Buy” rating.

Financials

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